This blog is used to post legal tips for businesses and consumers in California as well as commentaries on issues of interest to clients in the San Diego area. For information about our services, please contact us at (619) 448-2129. This publication is NOT INTENDED TO SERVE AS A SUBSTITUTE FOR LEGAL ADVICE. Please consult with a licensed attorney if you require legal advice. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Sunday, July 25, 2010

In a recent blog entry, I discussed the misleading concept that some debtors think of themselves as "judgment proof". However a recent question from a client about insolvency as an "alternative" to bankruptcy indicated that another article on the topic might be warranted.

There are two types of insolvency: (1) cash flow insolvency, where you cannot pay your debts as they come due; and (2) balance sheet insolvency, where the debts exceed the value of your assets. Insolvency might make a bill collector's job more difficult, it is NOT as a legal defense to the nonpayment of debts and cannot protect you from a lawsuit for unpaid bills.

You cannot be "declared" insolvent nor can you "claim" insolvency except perhaps when dealing with debt forgiveness income on your tax return. If a debtor settles a creditor card debt for less than the full amount owed, they will send out a 1099 to the debtor and the IRS. If the debtor meets the definition in the Internal Revenue Code for insolvency, the debt forgiveness might not be counted as taxable income. However, the creditor is free to file a lawsuit and get a judgment to garnish the debtor's wages.

Insolvency by itself is not an alternative to bankruptcy. It is a bit like trying to hide assets or doing nothing in the hope that creditors won't find anything. It is also like running and hiding from a bully. Sometimes you need to confront the bully.

If you are in Southern California and are tired of running from your creditors and the harassing phone calls, please call me today and (619) 448-2129 for a free consultation.

Thursday, July 15, 2010

Fans of the show "Real Housewives of New Jersey", may know that Teresa Giudice and her husband filed for Chapter 7 bankruptcy. What they may not know is that the trustee assigned to the case has filed a lawsuit asking the bankruptcy court to prohibit them from getting a discharge. The lawsuit, called an adversary proceeding, accuses them of hiding assets from the court and the trustee. The hidden assets are said to include a pizza parlor, laundromat, Teresa’s TG Fabulicious clothing line and the “Skinny Italian” cookbook.

The original bankruptcy petition filed by the Giudices did not even list bank accounts. Even with at least 2 subsequent amendments, many of the Giudices assets seen on the show were apparently left out. The trustee seems to have taken notice of these omissions.

Section 727 of the Bankruptcy Code allows the court to deny a discharge if debtors lie under oath or try to conceal assets. Committing perjury in a bankruptcy case is a federal crime that could bring fines of up to $250,000 and/or a jail sentence up to 5 years. To add further insult to injury, the debtors will still lose their assets. The Giudices will soon be losing many of their home furnishings, tools and a boat.

An attorney can only provide proper advice with full disclosure from the client. Lying to the trustee and the court simply is not worth the risk of losing your discharge or going to jail. If you are in Southern California and need advice about properly protecting your assets in bankruptcy, please me today at (619) 448-2129 for a free consultation.

Saturday, July 10, 2010

I sometimes hear from debtors that do not wish to file bankruptcy because they believe that they are “judgment proof”. Being “judgment proof” generally means that the debtor has no substantial assets that a judgment creditor could use to satisfy a judgment. However, the lack of ability to pay a judgment is not a legal defense to a lawsuit and a creditor can still sue for any unpaid debts. This reality makes the term “judgment proof” misleading.

Just because a debtor does not currently have assets does not necessarily mean that getting a judgment is a waste of time. A creditor could use a wage garnishment to collect as much as 25% of the debtor's take home pay. The debtor's financial situation could also change in the future. Judgment creditors will sometimes wait to see if the debtor inherits property, receives a tax refund or even wins the lottery. Once the judgment is recorded, it will show up automatically on the debtor’s credit report too.

Lawsuits can be scary. Bankruptcy can stop creditor harassment immediately so you don’t have wonder if the county sheriff will show up at your job to serve your employer with a wage garnishment. If you are in Southern California and involved in a debt collection lawsuit, call me today at (619) 448-2129 for a free consultation.